The service sector

The services sector has been growing at a rate of 8%

per annum in recent years
More than half of our GDP is accounted for from the
services sector
This sector dominates with the best jobs, best talent
and best incomes and Services dominate economy in
most nations



Defining Services
In exchange for their money, time, and effort,
service customers expect to obtain value from

Access to goods, labor, facilities, environments,
professional skills, networks, and systems

But they do not normally take ownership of any of
the physical elements involved

The service sector

Understanding services offers you personal
competitive advantages
Importance of service sector in economy is growing
rapidly:
Services account for more than 60 percent of GDP worldwide
Almost all economies have a substantial service sector
Most new employment is provided by services
Strongest growth area for marketing

-THEODORE LEVITT-
There are no such thing as service
industries.
There are only industries whose service
components are greater or less than
those of other industries.
Everybody is in service.
I T I S THE PART OF THE PRODUCT OR THE
FULL PRODUCT FOR WHI CH THE CUSTOMER
I S WI LLI NG TO SEE VALUE AND PAY FOR I T.
What is services?
What is a service?
It is intangible.
It does not result in ownership.
It may or may not be attached with a physical
product
Difference between physical goods and
services
Physical goods Services
tangible intangible
homogeneous heterogeneous
Production and distribution are
separated from consumption
Production, distribution and
consumption are simultaneous
processes
A thing An activity or process
Core value processed in factory Core value produced in the buyer-seller
interaction
Customers do not participate in the
production process
Customers participate in production
Can be kept in stock Cannot be kept in stock
Transfer of ownership No transfer of ownership
Table 1-2
Services are Different
Goods Services Resulting Implications
Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardized Heterogeneous Service delivery and customer satisfaction depend on
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production
separate from
consumption
Simultaneous
production and
consumption
Customers participate in and affect the transaction.
Customers affect each other.
Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
Nonperishable Perishable It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.
Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing,
Journal of Marketing 49 (Spring 1985): 33-46.
Services could meet
Personal needs haircuts, tuition, beauty parlours
Business needs courier services, office cleaning
services, delivering fresh flowers
Nature /Characteristics of services

Intangibility
Inseparability
Perishability
Variability




Services Dominate the U.S. Economy
(Fig 1.1)
Services, 68%
Agriculture, Forestry, Mining,
Fishing, 2.3%
Manufacturing and
Construction,
17.3%
Government, 12.4%
(mostly Services)
Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1

INSIGHTS

Private sector service industries account for over two-thirds of GDP

Adding government services, total is almost four-fifths of GDP

Estimated Size of Service Sector in
Selected Countries (Fig 1.2updated 10/06)
Services as Percent of GDP
Poland (66%), South Africa (65%)
Japan (74%), France (73%), U.K. (73%), Canada (71%)
Saudi Arabia (33%)
China (40%)
India (48%)
Argentina (53%), Brazil (51%)
Panama (80%), USA (79%)
Luxembourg (83%)
Cayman Islands (95%), Jersey (93%)
Bahamas (90%), Bermuda ( 89%)
Mexico (69%), Australia (68%), Germany (68%)
Israel (60%), Russia (58%), S. Korea (56%)
30 40 50 60
70
80 90 20 10
Changing Structure of Employment as Economic
Development Evolves
Industry
Services
Agriculture
Time, per Capita Income
Source: IMF, 1997
Figure 1-1
Tangibility Spectrum
Tangible
Dominant
I ntangible
Dominant
Salt
Soft Drinks
Detergents
Automobiles
Cosmetics
Advertising
Agencies
Airlines
I nvestment
Management
Consulting
Teaching
Fast-food
Outlets
Fast-food
Outlets












Transformation of the Service Economy
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on:

Understanding customers and competitors

Viable business models

Creation of value for customers and firm

New markets and product categories

Increase in demand for services

More intense competition

Factors Stimulating Transformation of the
Service Economy (1)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization

Changes in regulations

Privatization

New rules to protect customers,

employees, and the environment

New agreement on trade in services

Factors Stimulating Transformation of the
Service Economy (2)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization

Rising consumer expectations

More affluence

More people short of time

Increased desire for buying experiences

versus things

Rising consumer ownership of high tech

equipment

Easier access to information

Immigration

Growing but aging population

Factors Stimulating Transformation of the
Service Economy (3)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization

Push to increase shareholder value

Emphasis on productivity and cost savings

Manufacturers add value through service and

sell services

More strategic alliances and outsourcing

Focus on quality and customer satisfaction

Growth of franchising

Marketing emphasis by nonprofits

Factors Stimulating Transformation of the
Service Economy (4)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization

Growth of the Internet

Greater bandwidth

Compact mobile equipment

Wireless networking

Faster, more powerful software

Digitization of text, graphics, audio, video

Factors Stimulating Transformation of the
Service Economy (5)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization

More companies operating on transnational

basis

Increased international travel

International mergers and alliances

Offshoring of customer service

Foreign competitors invade domestic markets

Traditional Marketing Mix
All elements within the control of the firm
that communicate the firms capabilities and
image to customers or that influence customer
satisfaction with the firms product and services:
Product
Price
Place
Promotion
Expanded Mix for Services --
the 7 Ps
Product
Price
Place
Promotion
People
Process
Physical Evidence
Table 1-3
Expanded Marketing Mix for
Services
PRODUCT PLACE PROMOTION PRICE
Physical good
features
Channel type Promotion
blend
Flexibility
Quality level Exposure Salespeople Price level
Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales
promotion
Differentiation
Warranties Transportation Publicity Allowances
Product lines Storage
Branding
Table 1-3 (Continued)
Expanded Marketing Mix for
Services
PEOPLE PHYSICAL
EVIDENCE
PROCESS
Employees Facility design Flow of activities
Customers Equipment Number of steps
Communicating
culture and values
Signage Level of customer
involvement
Employee research Employee dress
Other tangibles
Figure 1-5
The Services Marketing Triangle
I nternal
Marketing
I nteractive Marketing
External
Marketing
Company
(Management)
Customers Employees
enabling the
promise
delivering the promise
setting the
promise
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler